PUBLIC LAW II 2010/11

Part I: Contemporary techniques of governance

B. Contractual Governance

1. Rise and importance

No Public Law course could be complete today without some consideration of the challenges and
opportunities presented by government contract and the contractualisation of services. Promoted by
both Conservative and New Labour Administrations, the policy of outsourcing in part blurs the
public/private sector 'divide'. Private sector notions of contract are also infused into public
administration: the discipline of markets or market mimicking, the individualist ethos of freedom of
choice. Contractual ideas of mutual obligation also inform the details of government policies concerning
the rights and responsibilities of the citizen.

Fundamental to the development is the ‘double-handed’ role of contract in the public sphere. So what is
identified as a chief building block of systems of governance (see Lecture 1) is also an essential agent of
the fragmentation of the pre-existing framework of government, it being through a contractual model
that the bureaucratic hierarchies and organisational forms previously associated with 'public
administration' have been challenged or subverted. A recurring theme is the close interplay or overlap
of contractual with regulatory forms of governance. Indeed, as a repository for rules, principles and
standards, contract functions as an alternative source of regulation.

The UK is once again a world leader, as illustrated by some massively complicated contractual
arrangements for public projects. Much in the domestic development may also be seen as part of a
broader transnational convergence; one that is most obviously driven by the rise in so many countries of
New Public Management type approaches and by the growing internationalisation of public
procurement practice and procedure. Looking forwards, the advent of the Coalition Government signals
a further major push in this direction…

A sense of the huge public and commercial importance of the topic may be gleaned from a 2008 study 1
of ‘the public services industry’ (PSI), i.e. ‘those organisations (private and ‘third sector’ enterprises) that
are contracted to provide services to the public on behalf of Government or to the Government itself’.

Key Points

 Sales by the public services industry (PSI) amounted to £79.4 billion in 2007/08. The largest area
for procurement of services is health, with an estimated £24.2 billion spent in 2007/08. The next
largest categories are social protection (£17.9 billion), defence (£10.1 billion) and education
(£7.3 billion).
 The PSI has grown in real terms on average by 5.4% each year since 1995/6 although growth has
been slower in recent years.

1
BERR, The Public Services Industry in the UK (July 2008).
  This strong growth means that the share the PSI is of total GDP has risen from 4.2% in 1995/6 to
5.7% in 2007/8.

Contractual governance

- The challenges and the opportunities that are presented by government contract and the
increased contractualisation of public services.
- Essentially. We’re talking about outsourcing or what is sometimes called the public procurement
of goods and services
o When the government buys itself things it needs (wide range of goods)
 Furniture in a government department
 Aircraft carriers
o The ‘purchase’ of public services in the sense that the government no longer provides
the service directly but recognises that the service should be provided and turns to
private providers
 Care homes for vulnerable elderly

This development needs to be viewed in some context.

Think of some of the implications of that kind of development.

- Clearly by definition, it blurs the divide between the so called public and private. Its public +
private. Compare to regulation which was often public vs. private. Here we're talking about
them joining together via contractual arrangements.

Second, we need to think about how some of the ideas from contract have been infused or brought
inside some of the areas in the public sphere.

- E.g. we classically associate contracts with freedom of choice and now wince we're contracting
with public services there's this idea we should have an element of choice when we for example
access health services or public education.
- We also associate contracts as being largely private and thus not having to conform to market
disciplines and constitution and from time to time we see experiments in the public sector e.g.
NHS with the idea of contracts to speed things up. E.g. doctor having a choice of which hospital
to use etc…

Further aspect you should read up in the textbook (today we're focusing more on commercial side) but
note that broader contractual ideas have also been used by successive governments as a modelling for
the relationship between the state and individuals or certain individuals. The idea of mutual obligation
where the individuals simply can't assume if the individual is in trouble, the state will be there to assist
the individuals. If the individual wants access to that help e.g. welfare benefits, they have certain
responsibilities/ obligations.

E.g. if unemployed and you want to claim state support, you have to demonstrate that, if you are able to
do so, you are actively looking for work etc... So there’s this idea of mutuality drawn from ideas of
contract.
So this idea of use of contracts and contractualisation clearly has some hard edges to it with legal
obligations on one side but is also being seized more broadly in the way public services are shaped and
the role of the state is conceptualised

It's the conservative government under Thatcher which begins to make this serious push down the
contractualisation route. Contracting out is what we're talking about which is the alternative piece of
terminology to outsourcing.

On the one hand, it's a way of delivering public services. On the other hand, it was the way in which the
C's set about deconstructing the pre-existing governmental model. It subverted the old idea that of very
large government departments which were also providers of services and in particular at the area of
local government. Particularly if you went back to the 60s and 70s you’ll see local government as direct
providers of services and it was through the median of contract that the C's set about breaking that kind
of model.

Do note that government contract wasn’t created in the 70s and 80s it has long historical roots. Maybe
even since government existed.

Second point to make is to appreciate the close interplay between regulatory governments and
contractual governments. It's all too easy to think about contracting out and something just disappears
from the rubric of public law. It's not like that as contract is a source of rules. It's the T’s and C’s; through
these, the state authority will still be able to exercise a measure of control and influence on the nature
of the services provided and depending on the level of specification, how those services have been
provided etc.

So contract sits side by side with regulatory power as exercised itself by regulatory agencies as a way the
state can generate rules for private bodies to follow. You may say yes but contract is a negotiation. it’s
not like the state can stipulate every condition it likes but do remember it’s a huge business and the PA
is often in a very strong negotiating position and in central government you find models T’s and C’s set
up for officials in all departments to follow.

Looking forward, what we can say is that the use of contract by government is certainly not going to
diminish under coalition government. If anything, there might be an increased emphasis on the use of
contract.

Importance of this in hard practical terms?

As with regulation, studying in the UK is interesting from a comparative point of view. As it’s a world
leader in regulatory reform, it’s also a world leader in the use of government contract and the
contractualisation of public services. When you look more closely at it, it's interesting to note that while
the conservatives got the ball rolling, contractual techniques have been taken further by NL. (Contrasted
to that pendulum swing with regulation)

How can we establish that the UK has been a world leader? One way is to look at the public projects
which have been subjected to contracting out. You can compare the sheer size of these projects with
what's been happening in other countries. E.g. the building of the channel tunnel rail link. Contractual
arrangements between government and contractors, the contractual price being something in excess of
4 billion pounds.

(vas hospital?) in NE London 1 bill pounds

Building of m6 toll road, 485 mill pounds. So a lot of really big infrastructure projects. And most
importantly, the modernization of the London underground. A contractual arrangement designed to last
for some 30 years. So government and the contractors making arrangements whereby private
contractors would do a complete modernisation of the tube over 30 yrs. mutual obligation set out in
literally 1000s of pages of contractual paper. 16 billion pounds.

So the UK has really led the way and some countries have followed this.

Important to stress that we're looking at domestic developments but will also be looking at
developments in EU law and indeed there are a further set of rules behind EU laws under the WTO and
GAT hats which are very active in outsourcing and stuff. So the UK is a world leader but we need to view
contractual governance in a broader trend of world development.

Besides fact and figures of individual projects, another way of getting a grasp on this comes from an 08
study commissioned by the treasure on what authors call the public services industry or PSI. PSI is
defined as organisations which might be private or so called TP (charities etc) contracted to provide
services to the public on behalf of the government or the government itself.

They found that in 07/08 (the one financial yr) sales by that industry amounted to almost 80 bill pounds.
The largest area was health at about 25 billion and the next biggest were social protection (he alt to job
training to care for elderly) and then defence and then education. They found that since 95 (period of NL
government basically), it'd been growing over 5% a year. And in 08, it was amounting to about 5.7% of
the GDP. So about 1/16th of the GDP of the country goes into what we're talking about today. The logic
of the coalition government must mean that this will go further. Notice the link in a so called big society.
Charities doing what things previously LA's might've been doing. Implies a further big push in the area.'

2. Potentials and issues

The quest for ‘value for money’ (VFM) has been at the heart of the pro-contractual development under
successive governments. Reference is naturally made to business expertise and capacity for innovation
and cost-shaving in a competitive environment.

More particularly, contract is seen as having the potential to enhance managerial and administrative
forms of accountability through specification. The elaboration of the EU Single Market – the idea of a
level playing field for would-be government contractors – has given matters a further boost (see below).

Paradoxically, however, the use by government of private legal forms may be said to strengthen rather
than weaken the case for arrangement protective of the public interest. As a generation of public
lawyers has come to understand, reconciling desiderata of (a) value for money (protection for the
taxpayer) and (b) process values like fairness, consistency and transparency with (c) precepts
traditionally associated with private autonomy, such as commercial confidentiality, is not easy. Nor
should the propensity of contract to squeeze out political accountability should be glossed over.

Functional limitations (as elaborated in contract theory)

 Presentiation
Or ‘bringing the future into the present’ by the use of contractual terms: planning.

Query: how far can this sensibly go?

 Relationality
Emphasis on the importance of mutual trust and co-operation to the smooth and effective workings of
contractual arrangements……

Query: does this not point up a difficulty of government using contact in determinedly instrumental
ways?

Against that background, we need to think about some of the advantages of the development and some
issues that arise from a public law perspective.

One explanation associated with C's is the ideological one; can take a broader view that individuals
prefer services and stuff generally provided by pirate sector vs public

But besides the ideological thing there are some more specific rationales that drive this development.

- At the heart of it, is the quest for value for money. The idea that doing things via outsourcing
rather than in-house is likely to produce better value for money.

Remember that when we talk about all this, keep in mind the taxpayers interest. These huge
amounts are being dispersed there's a taxpayer interest making sure the sums are paid out
properly and more generally that we the taxpayer are getting a good deal. There are various
arguments that are put forward in favour of outsourcing as, in broad terms, producing better
value for money.
o Ideas of business expertise and capacity for innovation. cost shavings in a competitive
environment and certainly under the C's a concern to sidestep the strength of the trade
unions in the public sector (comparative strength rather)

Are these value for money arguments realised when you look at it in practice though?

- It's also been that (the idea of contract as a tool for delivering services) is advocated as being
able to enhance managerial and administrative accountability. Argument here is that if you are
going to proceed down the road of contract, clearly to some extent, you have to specify what
you are contracting for. What’s the level of service, how is it going to be delivered, at what price
etc...
 So the argument goes that by writing things down, it then becomes much easier to hold people
to account for the level and quality of delivery.

- The other big set of rationales is very much bound up with the EU single market. The idea that
across the single market, we should be creating a level playing field for government contractors.
So it's not just domestic drives but also EU.(separate section on this later)

So these are arguments in favour of this general development. Clearly though it raises some key issues

- Some commentators have argues that the use by government of private legal forms in the guise
of contract far from weakening the case, actually underscores the case, for very careful
arrangements protective of the public interest. (argument goes that public lawyers should be
looking even more closely at this sort of arrangement rather than shying away)

- Tensions; value for money protection of taxpayer concur. We’ve also got issues of process
values. If we're going down this route, we need to think about issues of fairness, consistency and
transparency in most obviously the bidding process. if we're going to contract out, what are the
rules on contracting out going to be?

- And if there is one area that one associates with the potential for corruption, government
contract is perhaps it. We're thinking here in terms of protecting private parties so that all
private parties get a affair chance to get in on the business and also concerned bat protecting
the taxpayer and to keep our political culture relatively clean.

- We've also got issues with the adequate protection for the beneficiaries. The TP beneficiaries, if
were going to use contract as a ay to deliver public services, what arrangements are we going to
have to make sure the users of these pub serves are properly treated.
privity of contract - leads to significant issues arising there.

- So there's this tension as soon as you get into contract you get the need for commercial
confidentiality. How do you balance that (protect trade secrets etc…) without the concerns
mentioned earlier? The other point to note is that you might say there were gains and losses in
terms of accountability. We can see something as a base for managerial accountaibility but just
like privatisation, contracting out undermines political accountability most obviously in the form
of ministerial actability?

There were 2 buzzwords that come from contract theory that you need to be thinking about when you
look at how all this works in practice. (Functional limitations as elaborated in contract theory)

1. ‘Presentiation’ (Present – iation)

What are you doing when you make a contract to deliver services/build something over a period of
time? It's the idea of contract of 'bringing the future into the present'. Through the T’s and C’s, the
parties have tried to specific what’s going to happen in the future.
Contract theorists ask how far can presentation sensibly go? How far is it reasonably possible to specify
in a contract we make today what's going to happen over a period of time. The longer the period and
the more complex the subject matter, the more complex it'd be to write it all into the contract.

So this is touching on a functional limitation of contracts; there's only so far it can sensibly go. May just
have to build in more variation clauses. But of course the more of those, the less certainty in the
contract, more difficult to assess price at the outset etc...

Clearly bears directly on the use of contracting to do some of these huge infrastructure projects. e.g.
tube. How can you possibly set out in a document what the contractual obligations are going to be over
a 30 year period. And there it’s not just about new trains, its retunelling, relaying track etc... and a lot of
the environment is uncertain/unknown

2. Relationality (Relation – ality)

So contract theorists say contract tray works well where it's created or helped to create a sense of
mutual trust and cooperation between parties and tends to be a less effective tool where there aren't
these elements between the parties

2 examples where this will happen

1. Government seeks to impose contractual type ideas on recipient of welfare benefits for example. This
might look like a contractual form but very one sided in that its really the government pushing this idea
of contract and some of the recipients may not be willing

2. The case illustrated by the tube. What happens if central government imposes on local government a
requirement to go down this route when actually local government doesn't want to go down this route?
So in that case, NL government under Blair forced the (old) labour administration (ken livingston) to go
down this route. The then London administration was forced to enter into these contractual
arrangements with the private contractors. Right from the outset they were picking holes in each other.
Never got to be mutual trust and the contracts weren't working smoothly. There were battlegrounds
from day one. Important when you think of contracts as a part of government policy so we need to think
about the consequences

consider 3 main aspects;

1. elements of Europeanisation in all of this

2. contract compliance or the use of contract by government as a level to achieve other policy
objectives
3. (PPP and PFI)public private partnerships and the public finance initiative. real set of instruments
pushed by Gordon brown when he was chancellor of the exchequer so it’s very much associated
with NL government.

3. Outsourcing (public procurement): Europeanisation

An activity estimated by the European Commission to amount to 15% of Member States’ total GDP…

Today, this is the subject of a detailed legal framework with a view to public contracts being awarded in
an open, fair and transparent manner. It has as policy rationales:

 the elimination of discrimination on national grounds

 economic efficiency and European competitiveness in the global market
 VFM for awarding authorities
 anti-corruption

Note: (a) the paradox of burgeoning (growing/flourishing) regulation in the cause of market
liberalisation; (b) how the framework (which is set out domestically in statutory instruments) sits
alongside all those common law rules on contractual formation and termination etc that you studied last
year.

‘The pathway model’

Award procedures

 open procedure – all interested firms being allowed to tender

 restricted procedure – tenders being invited from a list of firms drawn up by the authority
 negotiated procedure – the contractual terms being negotiated with chosen contractors, the use
of which has however been strictly confined precisely because of the informality
 competitive dialogue procedure – providing space for discussions with suppliers to develop
suitable solutions, on which chosen bidders are then invited to tender.

Award stage [simplified version]

(1) ... a contracting authority shall award a public contract on the basis of the offer which –

(a) is the most economically advantageous from the point of view of the contracting authority; or (b)
offers the lowest price.

(2) A contracting authority shall use criteria linked to the subject matter of the contract to
determine that an offer is the most economically advantageous including quality, price, technical
merit, aesthetic and functional characteristics, environmental characteristics, running costs, cost
effectiveness, after sales service, technical assistance, delivery date and delivery period and period
of completion.

(3) Where a contracting authority intends to award a public contract on the basis of the offer which
is the most economically advantageous it shall state the weighting which it gives to each of the
criteria chosen in the contract notice or in the contract documents . . .

(4) When stating the weightings referred to in paragraph (3), a contracting authority may give the
weightings a range and specify a minimum and maximum weighting where it considers it
appropriate in view of the subject matter of the contract.
 (5) Where, in the opinion of the contracting authority, it is not possible to provide weightings for the
criteria referred to in paragraph (3) on objective grounds, the contracting authority shall indicate the
criteria in descending order of importance in the contract notice or contract documents . . .

(6) If an offer for a public contract is abnormally low the contracting authority may reject that offer
but only if it has – (a) requested in writing an explanation . . . (b) taken account of the evidence
provided in response . . . and (c) subsequently verified the offer . . . being abnormally low with the
economic operator . . .

Notes:

The E commission has long been interested in regulating this general activity. In addition to the domestic
rules and regulations, there is a very detailed framework produced at European level with a view to
making sure government contracts are awarded in a fair and transparent way. So the rules regulate how
the bidding process is conducted.

Why has the EC really pushed this agenda? It's sort of the same reaseons we find at national level but
there are some European connotations to it.

- Elimination of discrimination on national grounds; if this is a big market (as it is in all countries)
and you are concerned to promote a good working internal market, you want to stop the
tradition of authorities contracting with local firms. (the pro-national way of doing things)
X Linked to this is the idea that opening it all up will generate better competitive discipline inside
the internal market and in turn promote economic efficiency and European competitiveness in
the global market. Again it's about value for money. The idea that if British governments can
procure equipment of better value from a non-national firm that'll be encouraged.

Anti-corruption (think Sicily)

What we have as a consequence of this is a very detailed framework. We’re emphasizing this because
the effect is an increase in cost. There's a lot of paperwork generated by this legal framework. So the
question is whether the administrative cost of it is worth it at the end of the day. This is not a cost free
enterprise by definition. What is the paradox? Clearly the commission is trying to keep the market
liberalised but to achieve this, they've had to go down the route of very detailed framework.

Typically, this is brought in to our own domestic system through statutory instruments. EU makes its
own directives this is put into effect at domestic level through a whole series of SI's.

Some key features of (the regulatory framework)

- We can understand where the EC is coming from but we've got a balance to strike. Imposing this
regulatory framework is going to be costly. Generate a lot of paperwork. What the commission
is going to do is create a framework dealing with a huge range of contracts. (e.g. to supply knives
and forks to a government canteen to complicated IT programs)
 - So within this erg framework there's an attempt to tailor the legal requirements of diff types of
contracts

The 2 big features

1. That the framework works on the basis that there a number of different pathways in making a
contract. If you're going to go down the bidding process, depending on the type of contract you
are dealing with, there'll be more or less requirements to follow and essentially what has to
happen is that the PA will have to choose from a no of different procedures depending on the
type of contract it's making. These range all the way from on the one hand the open procedure
(where you place an ad in the relevant trade press and all interested firms are invited to tender
and you must listen to all those firms) to at the other end, what is called competitive dialogue
procedure where you are involved in a very complex contract where you the PA may not be able
to specify a solution in advance, you are allowed to enter into a dialogue with a few chosen
firms excluding all the others and then you make the decision from those few firms. (people
would have to research solutions and there's a lot of commercial confidentiality and hence the
basis for this) It's clear that the features of the competitive dialogue process mean it isn’t that
competitive as you only select 2-3 firms to do it with.

2. The detailed rules we find at the actual award stage. How does the PA decide who wins? What
we see is a detailed set of rules for how the PA is to decide who wins.
o This regulatory framework in a number of ways structures and limits the PA's discretion.
Limited in a number of ways and it may be called on to publicly justify the basis on
which it made the award.

in practice, it's almost always economically advantageous to use this framework as it allows you to
consider a whole range of things.

However, you have to specify in advance the weightage you are giving to the different characteristics
and you are not allowed to depart from that criteria. So under the framework, you make a decision and
you then come under obligations to justify your decision. Must give reasons if asked to any disappointed
bidder including sufficient detail for them to understand how that weightage is applied.

That model is surrounded by a whole set of thingies on advertising, technical specification etc (must be
European standard) The framework so allows the commission, you must report your decision essentially,
the commission has powers to investigate and take infringement action. Most importantly, there's a
whole set of special remedies for a disappointed bidder. Can seek compensation for loss of a fair chance
etc. and also a special remedy, disappointed bidder can ask a court to void a contract that has been
made

So if you can't clearly justify how you went about make your decision, anyone disappointed in the
competition can take serious action against you as a body exercising a public function or a PA.
Evaluate the framework yourself. Other main point; the thresholds on which the framework applies is
very low. Applies even to day to day procurement decisions by many PA's.

4. Contract compliance

This denotes the use of the great commercial power of government contracting to achieve political and
social objectives. This might include environmental requirements or anti-discrimination policies for
example. Note how the technique (which has a long and chequered history in this country) touches on
basic ideological questions: social engineering, however beneficial, versus a purist conception of VFM
and business autonomy.

We see the technique in play in the well-known case of YL v Birmingham CC [2007] UKHL 27, which in
turn points up the challenges of legal accountability generated by the trend to contractualisation.

(Note the valedictory legislation - s. 145 of the Health and Social Care Act 2008:

A person (“P”) who provides accommodation, together with nursing or personal care, in a care
home for an individual under arrangements made with P under the relevant statutory provisions is
to be taken… to be exercising a function of a public nature in doing so.
See further: London & Quadrant Housing Association v Weaver [2009] EWCA Civ 587)

Contract Compliance

Suppose you are the pm and you think about the way in which you might like to deliver policy/ to
change behaviour. As lawyers, we legislate. We use the power of command through law. If government
has all this wealth, why not use that power of wealth when that wealth is being dispersed using contract
to impose T’s and C’s on contractors which serve wider policy aims.

Use your power of contract based on you are power of wealth based on you are power of tax to achieve
wider policy objectives. Standard technique but power increased if we go down the road of
contractualisation.

can say to firms if you don't do xyz we aren't going to contract with you.

or we can say if you want to contract with us, you do abc.

As such, it has quite a checkered history in this country. We could say we're only going to contract for
goods and services with firms who have some kind of environment friendly rating. So we use our power
of contracting to further our general interest as a government in increasing environmentally friendly
stuff. We use legislation (stick) but this is the bit of carrot as well.

We can do similar things in terms of fighting discrimination in employment practice (long been used as a
tool in n Ireland) saying we want to see an appropriate proportion in you are workforce of both
Catholics and protestants.
Again we could be saying to people in certain parts of the country, if you want to win the contract for
the motorway, you are employing a sig no of unemployed people from the locality.

More controversial again, we won't contract anybody who has business dealings in what was apartheid
south africa.

What we see immediately is that it raises some big ideological questions. about how we think
government contracting shld be a thingy of value for money based on price. biz autonomy. and on the
other hand arguments in favor of broader policy objectives ("social engineering")

Not surprisingl this is an era we see the pendulum swinging. C's under thatcher, very against this (NI
apart) central government being ordered not to go down this route and legal rules to stop left wing
labour council from gg down this route e.g. sa partied. Under NL government, you see something of a
swing back. Quite a lot of work here around the area of the government. e.g. you have to be green
friendly and we specify it according to a particular code of practice.

intereting one is the use of CC to promote HR. if you want to be a service provider taking money from a
PA in providing ur services to an individual, you must make sure that ur services adhere to the standards
of human rights.

YL v Birmingham

case of old lady in a private home largely funded by PA. q was whent he care home said you had to
leave, whether she cld stand on the HR act. would've been art 8 family life etc. concerns that movign her
might lead to a premature death. In a highly controversial decision (3-2) HL decided HR act didn't confer
protection cause the care home though it was in receipt of public funding to care for her was essentially
a private biz so for the majority it shld belooked at thru those lenses in demarking the limits of public fn.

That case is now worth revisiting coz there was something else there which influenced at least 2 of the
maj judge.s There were 2 sets of contracts made bw local auto inc are home. and 2nd bw care home
and her. note that both of those contracts involved an obligation on the care home in the delivery of the
care to her to abide by hr standards. the significant one being the duty to avoid inhuman and grading
treatment (art 3)

so it was a sense of which route the hl would go down. would they apply the hra to spply by itself
meaning the hra would trump the contract. or would they say it doesn't apply which leaves ppl with
their contractual and other forms of regulatory protection. the majority chose the lathater (and notice 2
of hte maj factored in that she was given contractual port to justify the decision)

pros and cons of contractual

more limited form of port

more something as it requires ppl to think about what hr requirements mean in this context

also conveys a sense of ownership

5. PPP/PFI

A key component of the New Labour Government’s strategy for the delivery of modern, high quality
public services, and for advancing national competitiveness, ‘public private partnerships’ epitomise the
idea of contractual governance. While PPPs cover a broad range of business structures and partnership
arrangements, from outsourcing to joint ventures, and to the sale of equity shares in state-owned
business, the principal vehicle in the UK has been the Private Finance Initiative. As a way of delivering
major capital investment, PFI represents both an alternative to, and - since the public sector is not
generally the owner and operator of the assets - a transformation beyond, the traditional paradigm of
government contract. As the name suggests, it differs from other forms of PPP in that the private
contractor not only carries out the project but also arranges finance.

Rationale

The standard rationale is VFM; achieved through private sector innovation and management skills
delivering significant performance improvement and efficiency savings. To this end, the UK Treasury
Department has attempted to specify the appropriate conditions for PFI (as against a public sector
scheme or traditional procurement process):

 there is a major capital investment programme, requiring effective management of risks

associated with construction and delivery
 the private sector has the expertise to deliver
 the structure of the service is appropriate, allowing the public sector to define its needs as
service outputs that can be adequately contracted for in a way that ensures effective, equitable
and accountable delivery of public services in the long term, and where risk allocation between
public and private sectors can be clearly made and enforced
 the nature of the assets and services identified as part of the PFI scheme are capable of being
costed on a whole-life, long-term basis
 the value of the project is sufficiently large to ensure that procurement costs are not
disproportionate
 the technology and other aspects of the sector are stable, and not susceptible to fast-paced
change
 planning horizons are long-term, with assets intended to be used over long periods into the
future
 robust incentives on the private sector to perform can be set up [ 2]

Apportionment of risk

2
HM Treasury, PFI: Strengthening Long-term Partnerships (2006), 32.
According to the Treasury:

The benefits of PFI flow from ensuring that the many different types of risks inherent in a major
investment programme are borne by the party best placed to manage those risks… The
Government does not seek to transfer risks to the private sector in a PFI project as an end in
itself. Where risks are transferred, it is to create the correct disciplines and incentives on the
private sector, which then drive value for money through more effective risk management. In
general, the Government underwrites the continuity of public services, and the availability of
the assets essential to their delivery, but the private sector contractor is responsible for its
ability to meet the service requirements it has signed up to. Where it proves unable to do so,
there are a number of safeguards in place for the public sector to ensure the smooth delivery of
public services, but the contractor is at risk to the full value of the debt and equity in the project.
The full value of that debt incurred by the project, and the equity provided by contractors and
third parties, is the cap on the risk assumed by the private sector.[ 3]

Concerns

 Government becomes overly vulnerable to the vagaries of the market; some PFI contracts
produce ‘mega-profits’ at the taxpayers’ expense
 Many PFI contracts fail to provide ‘real’ risk transfer from the public to the private sectors;
whatever the contract may say, with essential services the public sector remains the
guarantor of last resort
 Limited pool of willing and able PFI contractors undermines competitive discipline
 Elongated, multi-faceted, and large-scale, PFI arrangements are peculiarly susceptible to
contractor failure, a source both of service disruption and further public expense
 Increasingly huge revenue commitments limit the spending options of future
administrations
 Lack of transparency; blurred lines of accountability

Third Aspect (PPPs and PFI)

by ppps we mean a whole kind of set of arrangements from outsourcing to joint ventures bw pub bodies
and priv sector, inside that a very imp development under NL is the idea of PFI

3
Ibid, 38.
PFI takes things one step further. with the PFI you (PA) make an arrangement with thte private
enterprise essentially do do some infrastructure. Make a project and usually (might be just to develop
the infra or maybe to develop then operate the project)

might for eg cover the ldn tube, might cover the building of a new hospital adn the funning of it. blunt of
a new sch academy and the running on it. what you need ti see is the further step. pt of PFI is that the
private enterprise funds the project. Funds the infrastructure. private enterprise makes the money like
this;

might for eg build the seven bridge and pay for the ... then has the entitlement to charge tolls on it for a
period of yeasr.

or it might modernize the tube over 3- yrs. pay all the costs then have an entitlement to a percentage of
the ticket prices to get its money back. Or again the NHS trust might say we need a new hospital, you
build and run it, we'll pay you say 20 mil a year to run it once use built it. Think of it in terms of a
mortgage. It's a particular form of contractual arrangement.

What you need to see ist t this became v popular under nl government being really pushed by gordon.
from the pov of the government at the time it had great advantages cause it meant you cld do major
new infrastructure projects and you didn't have to pay the money up front. you cld hope to pay it over a
period of time. but of course its not a freebie and a result of this large scale development is that many
local autos and government etc are now tied in to a very sig no of contractual arrangements that go
many years into the future. so if you like taxpayer was saving money earlier but now has to ay more
recompense for taking of risk by priv enterprise etc...

need to factor in what's happened in terms of recession and crash and deficit see this is a controversial
bit of the nl legacy.